Online shopping puts traditional jobs at risk

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Johannesburg - The growth of online shopping in South Africa is bringing with it a new challenge: declining job creation.

Analysts expect the local market to copy the online retail growth trajectory and subsequent decline in shopping mall visits that has manifested in markets such as the US, where an estimated 50 percent of shopping is conducted online.

A survey by Mastercard earlier this year showed that online shopping was in its nascent stages along the growth curve in South Africa but its popularity was rising. The study revealed that last year South Africans spent R3.3 billion online and by the end of this year were expected to spend closer to R4.4bn on virtual retail.

Chris Gilmour, an investment analyst at Absa Capital, said the percentage of online retail’s contribution to the entire retail industry was hardly measurable.

“It’s certainly less than 2 percent,” Gilmour said, adding that unstable and unreliable broadband in South Africa including cultural and large-scale distribution challenges did not make online shopping a significantly attractive option for consumers.

But, there are between 1 500 to 2 500 online retailers, according to Arthur Goldstuck, the managing director of technology consulting firm World Wide Worx.

In a study commissioned by Google and published by World Wide Worx last year, the research firm found that online retail was growing at about 30 percent a year in South Africa.

“Long term I would expect online sales activity to negatively impact employment as more efficient sales methods would centre around economies of scale in the form of reduced staffing numbers,” Peter Aling, a director of Prophet Analytics, a labour consulting firm, said on Wednesday.

While there has been significant growth in online retail, the segment was still small in comparison with the percentage of traditional retail sales.

Aling said the reality was that online stores could supply multiple consumers across the country because of an existing distribution network.

“The long-term effects of online retail are not positive for employment,” he said.

The evidence so far of job losses has been anecdotal.

Michael Bagraim, a labour lawyer in Cape Town, said many of his clients in the retail industry were turning their focus to online retail.

“A lot of my clients who are going that route are going on a retrenchment exercise. We’ve got to move with the times but in South Africa we can ill afford the loss of jobs. We’ve got an issue called jobless growth,” Bagraim said.

He said it would be improper for the state to interfere, particularly because the economy was changing.

Bagraim recalled his recent trip to New York, where online shopping had as strong a following as traditional retailers.

“It’s going to get stronger in South Africa as more people get on to the internet… at the moment it’s a trust issue. But when you speak to people under the age of 40 they have no problem shopping online.”

Bagraim said his clients had forecast that up to 50 percent of shopping would be done online by the end of 2015.

Paul Greenberg, the chairman of, South Africa’s first online clearance marketplace said: “The web has changed how traditional shoppers find what they’re looking for. Browsing, narrowing down options, and purchasing used to involve as many as three trips to the shops but with smartphone penetration rapidly increasing, across the continent, all three can be done at home, on the couch, on the street – anywhere.”

Greenberg said South African businesses and consumers were following international trends by using the internet to research a large percentage of the goods they eventually bought in person.

“This will have a negative impact on traditional retail employment because 20 years ago, the shoppers went to the stores. Today the stores go to the shoppers. From floor salespeople replaced by informative websites to the daily tasks once performed by store employees, these are either being taken over by machines or outsourced to customers,” he said.

But he added that retail jobs would not be extinct.

“They are likely to decline slowly and while online employment is growing, the numbers are not significant at all. The very nature of e-commerce is to employ less people than physical retail or wholesale.”

Consider Africa Internet Accelerator (AIA) for example, an internet startup accelerator firm in which media conglomerate Naspers holds a majority stake through its subsidiary MIH Internet Africa.

Whereas a retailer such as Pick n Pay or the Foschini Group employed thousands of people, AIA has 200 employees who work across three online retail sites Style36, 5Rooms and kinderelo.

“These teams are made up of marketing, customer service, IT [information technology], business intelligence, buyers, operations, production, finance, HR [human resources] and warehouse distribution,” Tanya Horak, the brand co-ordinator for AIA said this week.

Horak added that the firm employed 40 staff at its Cape Town warehouse team and nine staff in the recently-opened Johannesburg branch. She said the company hired casual workers to assist during busy operations such as the Cyber Monday project, which the company launched in South Africa in early this month.

Style36, a clothing retailer and 5Rooms, a lighting, furniture and homeware store, netted nearly R4 million in combined sales on a single day and the customer base increased by more than 60 percent in 24 hours. Shoppers received discounts of up to 80 percent on international brands during that period.

“As we are an online store, we are able to offer a competitive price point on our products as we have less costs involved, than a bricks and mortar store would have,” Horak said.

E-commerce is set to grow on the continent. MTN, the second-largest wireless network provider in South Africa and the largest in Africa, has partnered with Rocket Internet, a global internet incubator and Millicom International Cellular to develop internet business in Africa. They this week announced the launch of Africa Internet Holdings, a business incubator, in which each party holds 33.3 percent.

The local online retail environment may also shrink as Greenberg’s intends to follow up with aggressive market consolidation through acquisitions. This week it announced the first purchase, that of, which was founded in 2010 by Lauren Graham and Kimberley Wood.

Going began trading in July as the country’s first online trading clearance site. It is a market place for online retailers, importers and distributors to sell their surplus consumer goods. The appliance inventory is listed and sold at a fraction of its original price. Greenberg is in partnership with Amabhubesi Investments, a black economic empowerment investor. was in discussions with three South African e-commerce players and two African operators that were based elsewhere in sub-Saharan Africa, Greenberg said. He said the company had identified 25 retailers that ran substantial enough businesses to make them interesting acquisition targets.

He expected at least two transactions to be concluded with two local online retailers in the new year while the firm was aggressively pursuing opportunities in other sub-Saharan countries.

“Our focus is on building an African e-commerce wholesaler and we are looking to expand our footprint outside of South Africa,” he said.

Greenberg said more e-commerce players would come on the market because they were finding themselves in a place where they had grown large customer databases but were not profitable.

“This no man’s land will be a challenge for e-commerce finding scale,” he said. “We saw the same thing in Australia and the UK, three years ago, where there was a proliferation of e-commerce spending big money building loyal customer following but as private equity funds dried up, the lack of profitability caused a speedy market consolidation. The smaller players struggled to find momentum and either closed down or sold out to the bigger ones.”

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